Wipro stock to be in focus after Q3 prints. What should investors do?

Market


Wipro’s earnings were mixed with the company missing street estimates in terms of the top-line front during Q3FY23 while exceeding expectations related to profitability and operating margins. Another positive is that Wipro continued to record moderation in attrition rate for the fourth consecutive quarter, however, it reduced its workforce in Q3. Also, the company announced the lowest dividend compared to peers in Q3. Post third quarterly results, the majority of experts are upbeat on Wipro shares and have recommended buying.

Wipro stock will be in focus on Monday after Q3 prints. Last week, on Friday, the company’s stock closed at 393.65 apiece broadly flat on BSE. The company’s market cap is nearly 2.16 lakh crore as of January 13.

During Q3FY23, Wipro garnered a consolidated net profit of 3,052.9 crore up by 2.8% QoQ and 15.24% YoY. Consolidated revenue came in at 23,229 crore rising by 3.06% QoQ and 14.35% YoY. In dollar terms, IT services segment revenue rose by 6.2% YoY to $2,803.5 million, while non-GAAP constant currency growth stood at 0.6% QoQ and 10.4% YoY. Also, the IT services operating margin for the quarter expanded by 120 bps QoQ to 16.3%.

Also, during the third quarter, the Azim Premji-backed company recorded 26% YoY growth in total bookings and a surge of a whopping 69% YoY in large deal bookings. Further, the company’s attrition rate moderated for the fourth consecutive quarter in Q3 at 21.2%. However, Wipro reduced its workforce by 435 sequentially taking the total employees headcount to 258,744 as of December 31, 2022.

Additionally, the company declared an interim dividend of Re 1 per equity share for fiscal year FY23. To determine eligible shareholders, the company has fixed January 25 as the record date, while the payment is expected on or before February 10, 2023.

Wipro expects FY23 revenue growth to be in the range of 11.5-12% YoY in the CC term.

Mitul Shah – Head of Research at Reliance Securities said, “Wipro’s revenue was broadly in line with our expectations while its margins were above our expectations. Its restructuring efforts, which include a simplified operating structure, a step-up in capability upgrade, and talent management under new leadership bode well for Wipro in the medium term. TTM attrition has also started falling supporting margin expansion. At present we have a BUY rating on WPRO.”

In its research note dated January 14, ICICI Direct on Wipro said, “Wipro reported weak Q3 results on the revenue front. IT services grew 0.6% QoQ in CC terms and 0.2% QoQ in dollar terms. IT services EBIT margins improved by 120 bps QoQ to 16.3%. Reported TCV of US$4.3 billion (bn), up 26% YoY.”

What should investors do?

As per ICICI Direct, Wipro’s share price has grown by ~1.6x over the past five years (from 245 in January 2018 to 393 levels in January 2023).

Thereby, the brokerage has changed its rating on the stock from Hold to ‘BUY’. It said, “We value Wipro at 455 i.e., 16x P/E on FY25E EPS.”

ICICI Direct also highlighted key triggers for future price performance in Wipro. These are:

– TCV for the quarter was at US$4.3 bn. Sustainability of the same in the

subsequent quarters will likely provide revenue visibility for FY24

– The company announced key leadership changes in focus areas of America

– Middle East, Japan & Australia and will likely provide a fillip to revenue growth in the regions

– Higher penetration in Europe, client mining, acquisition of new logos, and traction of digital revenues to further boost revenue growth

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.


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